Friday, 10 February 2012

Oldest Swiss bank falls victim to US tax probe

Published: Saturday, Jan 28, 2012, 2:09 IST
Place: Zurich | Agency: Reuters 


Wegelin, Switzerland's oldest bank, broke itself up on Friday, buckling under the pressure of a long-running campaign by US authorities against tax cheats hiding cash in secret Swiss accounts.
The 270-year-old bank to the super-rich moved most of its employees, along with clients and assets of 21 billion Swiss
francs ($22.9 billion), to Notenstein Privatbank, an entity set up specifically for the purpose. Notenstein has in turn been bought by Swiss cooperative bank Raiffeisen for an undisclosed sum, the banks said, leaving Wegelin with problematic US assets under scrutiny from US prosecutors.
The St Gallen-based bank took the dramatic step in the face of possible indictment on charges the bank enabled wealthy
Americans to evade taxes. By splitting its businesses, Wegelin is hoping to shield the healthy European operations from the consequences of the US investigation.
It will remain in charge of its US customers, and six of its eight partners will remain, leaving them to face the consequences of any US actions.
"Even if the bank itself isn't charged, the American situation could leave a prevailing feeling of legal insecurity over its businesses," said Michel Derobert, Secretary General of
the Association of Swiss Private Bankers.
Life's work
"One can certainly imagine how difficult this step was for us. We are giving up our life's work," said Konrad Hummler, one of Wegelin's eight top managing partners and a leader in Swiss financial circles.
"The monstrously difficult and existence-threatening situation that the dispute with US authorities has put us in forces me and my partner of several years Otto Bruderer...to this extraordinarily painful course of action," he said.
Hummler, one of Switzerland's most influential and outspoken bankers and Chairman of leading conservative daily NZZ, said he was relieved Raiffeisen was taking over Wegelin's employees and clients, 70% Swiss and 30% European.
The problem US assets will remain in Wegelin. Reuters calculations put the total of these assets at some 1.5 billion Swiss francs.
Clampdown
A global attack on Swiss banking secrecy has been particularly painful for smaller Swiss private banks, as cash-strapped governments seek to crack down on tax evaders. Wegelin is the second high-profile name to fall in three months, after Credit Suisse said it would integrate private bank Clariden Leu. Switzerland and the United States have been locked in a tax dispute for years. In 2009, UBS paid $780 million to settle criminal charges and turned over the names of 4,500 clients.
The US Justice Department is probing 11 Swiss and Swiss-style banks, including Wegelin, which riled US authorities by taking on US clients of UBS after their settlement.
The investigations are also focused on Credit Suisse and Basler Kantonalbank, among others. Three Wegelin employees have been indicted by US prosecutors for selling tax evasion services to well-off Americans. The charges outlined the sales role of senior unnamed partners at the bank. Swiss finance minister Eveline Widmer-Schlumpf is hoping for a deal with the United States this year and said progress had been made at the World Economic Forum in Davos this week. Mario Tuor, spokesperson for the State Secretariat for International Financial Matters (SIF) said the sale would give Swiss banks legal clarity.
"As long as this is still open, the amount of uncertainty is not favourable for Switzerland as a financial centre," he said.
Switzerland struck deals this year with Britain and Germany that would allow their citizens to pay tax on secret accounts without revealing their identities, although these are being challenged by the European Commission which wants to force Switzerland to accept an automatic exchange of bank information. Switzerland's banks are unlikely to rest easyuntil a deal is agreed with the United States. Rich foreigners have already started pulling funds from secret accounts in Zurich and Geneva, prompting big players to gobble up smaller rivals. Raiffeisen has been looking for acquisitions and made an unsuccessful bid for private bank Sarasin, which was bought by Brazilian-Swiss private bank Safra late last year. Wegelin, founded in 1741, is the first standalone Swiss bank to shut up shop as a result of the US pursuit of tax cheats.
Old name, new bank
The new private bank, Notenstein Privatbank, will be headed by Adrian Kuenzi, who was until now the chief of Wegelin's western Switzerland business. Notenstein Privatbank, which got its name from a 15th-century society of Swiss merchants, will be operated as an independent unit within the Raiffeisen Group and be up and running on Monday. The deal, which will give Raiffeisen a foothold in the business of wealth management, will secure 700 jobs in Switzerland, Raiffeisen said

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